Rotation, Environments, and Earnings Themes

When the market environment shifts, it can be difficult to notice.

Especially if the indices themselves aren’t acting any different. We’ve been in an environment where themes and speculation have run rampant. Stocks like IONQ, RGTI, OKLO, LAES, ASPI, RCAT, etc. have gone parabolic over the last few weeks and in some cases months. Over the last week or so, there’s been a clear change in character. But.. you wouldn’t notice it unless you looked underneath the hood. Why? The indices continue to hold up. Our job as market participants is to look deeper and underneath the surface.

Last week I noted the following re: speculative momentum names:

Since then, the unwind has continued. Why? Rotation. Big money has been made in these high flying speculative names and now money managers are looking around the market asking themselves where the next opportunity is.

The environment we’re potentially pausing was a wild one. In certain markets you can get away with chasing and still make money. You’ll buy something extended, it’ll go higher, and you’ll get lucky. But that type of market creates bad habits. You have to be aware enough to recognize when the environment changes. I think that change might be happening at least temporarily. You can’t be as loose and willy nilly in this type of market. If you miss your entry just move on or wait for it to set up again. A few weeks ago you could just chase something high because it would probably end up going higher. Not anymore. You need to be a lot more careful now than you were a month ago.

I say all of that fully understanding that we still have stocks like BYND seeing massive moves so there’s clearly speculative money still floating around. The difference is in the scale. It takes a lot less money to move a name like BYND than it does something like OKLO. Beyond Meat has a $1B market cap while OKLO is closer to $20B. BYND is thinner and doesn’t require nearly as much capital to push around which is why you can still see those explosive moves even when broader speculative momentum across the market starts cooling off.

What else do I look for when evaluating a potential character change?

- Length and strength of my watchlist
- Position feedback

The length of my watchlist has been shorter than usual as of late and the position feedback has been subpar. New positions aren’t gaining traction and current ones feel like they’re just chopping around in mud. Those two things alone tell me there’s been a shift. Maybe it lasts a few days, maybe a few weeks, but something has clearly changed for now.

Lets take a look at some of these high flyers.

IREN:

RGTI:

OKLO:

Those are monstrous moves. What sticks out most to me is the massive upper wicks from last week. Am I saying these have topped forever? No. I do think it’d be completely normal for these names to take a break. When the environment shifts back to speculation mania again, we’ll be ready. For now I’m focused on what could be next. This earnings season will tell us a lot about where capital wants to go and I think we’ll see a new crop of leadership emerge in the next few weeks and months. I already have an idea of what could be next I’ll be discussing that below.